ASML (ASML 1.22%) may be the most important company you've never heard of. Without its product, none of the innovative AI models, smartphones, or practically any other high-technology devices we take for granted would be possible.
That's a huge statement, but it's true. ASML's ultraviolet lithography machines allow chip companies to place microscopic traces on chips, which is necessary to produce the most powerful and energy-efficient chips we've seen to date. To sweeten the deal on ASML's stock, it's the only company in the world with this technology, giving it a monopoly.
That's a quick summary of what I consider to be one of the best investment options available on the market. To make the stock even more attractive, it's currently down over 30% from its all-time high, making it a stock that could soar in 2025.
ASML's technology is vital in the chip production process
ASML's technological monopoly in this space makes it a unique investment, as it's protected by decades of research and innovation, plus patents. It would take billions of investment dollars to catch ASML, which basically makes it unmovable from its throne.
These machines create chips at major semiconductor producers like Taiwan Semiconductor (TSM 0.04%) and Intel (INTC), and whenever you see or hear these companies creating a new chip or building a new factor, you should automatically assume that they need to purchase another ASML machine.
However, this does create a problem for ASML, as its sales are tied to just a handful of customers. Some of its biggest buyers in recent years were companies in China, but Western governments were wary of ASML's top-tier machines falling into the hands of China and its allies. As a result, the Netherlands (where ASML is headquartered) and the U.S. imposed strict restrictions on which machines are allowed to be sold and serviced in China. Those restrictions were tightened in 2024 and caused ASML's management to tweak its guidance for 2025.
Previously, investors expected 30 billion to 40 billion euros based on 2022 investor day guidance. However, management adjusted that range to 30 billion to 35 billion euros based on weakness in China.
This is what caused the stock to drop over the past few months, but it's far overblown. Management pointed out that China will now make up around 20% of total revenue, a more historically accurate level than what ASML has recently experienced. In Q3, 47% of ASML's revenue came from China, so China was spending far more than it traditionally had. Alongside the more intense bans, China is also heading toward a recession, which would quell the amount of dollars spent buying machines to increase chip production capacity.
However, this short-term weakness is a great buying opportunity for ASML stock, as the long-term tailwinds are still intact.
The stock is cheap for how important its product is
First, a simple question. Do you think technology will become a greater part of our daily lives over the next decade? If you answered yes (which I think is the obvious answer), then we're going to need more ASML machines to meet the corresponding chip demand.
Despite management lowering the guidance range for 2025 that they gave during its 2022 investor day, they didn't touch the guidance for 2030. That estimate still ranges from 44 billion to 60 billion euros and was unchanged in their 2024 investor day presentation.
Management clearly sees these long-term trends still intact, which is a great sign for investors.
After the sell-off, ASML's stock is far more reasonably valued. ASML now trades for 24 times 2025 earnings, which is a steal considering how vital ASML is to economies around the globe.
ASML PE Ratio (Forward 1y) data by YCharts
I think investors will realize that ASML is still well-positioned for the long term and will be a successful investment even if the short term is a bit bumpy. This could cause the stock to soar to new highs throughout the year.
By buying the stock now, you'll have a chance to buy it at the low point, but you'll have to be patient because the market doesn't always move as fast as you want.
ASML is a great stock pick due to its dominance in its space. With its future still bright, I'm confident that ASML will be a long-term market beater.
